Caterpillar Profit to Miss Estimates as Energy Rout Deepens

Caterpillar Inc., (IW 1000/71) the biggest maker of construction and mining machinery, said first-quarter sales and profit will trail analysts’ estimates as oil drillers cut billions from their investment budgets to weather a commodity rout.

Sales will be $9.3 billion to $9.4 billion and adjusted earnings per share will be 65 cents to 70 cents, the Peoria, Illinois-based company said in a regulatory filing on March 17. That’s below the averages of $10.2 billion and 95 cents, respectively, among analyst estimates compiled by Bloomberg.

“Energy is the one part that continues to deteriorate,” Joel Tiss, an analyst at BMO Capital Markets Corp., said. “A lot of industrial companies, not just Caterpillar, don’t have their arms all the way around the extent of the energy downturn.”

Caterpillar, which makes motors that power oil and gas rigs, has seen sales drop and backlogs disappear for its engines and turbines as drillers slash capital budgets. With commodity prices slumping in January to the lowest in almost seven years, miners from Australia to Brazil have trimmed costs to try to remain profitable. Caterpillar, famous for its signature yellow machines, has responded by reducing its own operating expenses.

The company said on March 17 that it “remained comfortable” with its full-year guidance for 2016 sales and profit.

Caterpillar offered its first quarterly earnings forecast in the company’s history, Mike DeWalt, the company’s vice president of investor services, said in a presentation on March 17.

In January, Caterpillar said sales in resource industries would decline 15% to 20% this year, and in construction by 5% to 10% as weakness in developing countries and oil-producing regions offset relatively stable U.S. economic growth.

The company’s shares have risen 10% this year amid cost cutting at the equipment maker and signs of recovery in metals prices and among its mining customers.

The pared-down outlook on March 17 comes after Caterpillar reported better-than-estimated fourth-quarter earnings, as cutbacks helped mute the effects of the commodities meltdown. Shares jumped when the results were announced in late January, as a 15% decline in operating costs suggested that the manufacturer was having some success in damping the effect of declining demand in the mining industry.